Don't build yourself a mortgage mountain. It's
fine to want the best home you can afford, but be certain that it is comfortable
affordability. Although you may find certain mortgage lenders who will stretch
your qualification ratios (the ratio of your total mortgage payment to your
total income), the traditional ratios--the mortgage payment as 28% of your
income and the total of your mortgage payment plus your monthly debt payments as
36% of your income--are good basic guidelines.
Get your budget under control. Spending some time
reviewing your budget (or developing one if you don't already have it) and
sharpening your money saving skills can bring big rewards later. A coordinated
budget allows you to get the most home for your money without strapping yourself
while eliminating wasteful spending.
Prepare to pay off small debts. Having 3 credit card
balances, for example, one with a $125 balance, a second with a $165 balance and
a third with $275 balance will only cloud the picture. Even though the total is
only $565, all 3 will have minimum payments, credit lines, etc. If possible,
prepare to pay them down to $0 balances.
Begin to gather documentation. It is not necessary that
you have all items on hand before you apply, but there are a number of documents
you will need eventually and the approval process will go much smoother if you
begin to gather them now. Examples: W-2's and income tax returns from the last
few years (especially if you are self-employed), copies of pay stubs, a copy of
your credit report, records of any child support or alimony (either going out or
coming in) and bank statements for all accounts (checking and saving) for the
last several months.
Don't forget about closing costs. In addition to your down
payment, you will need to reserve funds for closing costs. Depending on the type
of loan and your location, these costs can range from 2-5% of the mortgage
amount, will be paid in cash at the closing and cannot be borrowed funds.
Compare. There are lots of sources for mortgage funds--be
sure to make comparisons. Be certain to compare equal terms, down payments and
loan types.
Consider points when comparing. Your total mortgage cost
will be determined by 3 factors: The interest rate, the term and the amount of
points.
Get educated! Securing a mortgage is not all that
complicated, but if you approach it blind, mistakes can be very expensive! Get
as much information as you possibly can...whether from friends or relatives that
have secured mortgages recently, or from books and articles.
Consider a 15 or 20 year term. Many home buyers make the
assumption that a shorter term will boost their payments out of reach. Unless
you make the comparison, though, you may never know if a 15 or 20 year (if
available) term could have been affordable. If you are concerned about
committing to the higher payment of a shorter term, try this tactic: Mortgage
the home with a 30 year loan but have the lender develop a 15 and a 30 year
amortization sheet for you. Then, do your best to pay the mortgage at the
shorter term payment. It will do wonders for your equity position!
Adjustable Rate Mortgages (ARMs). If you are certain that
you are going to be in the house for a short time (less than 5 years for
example) strongly consider an Adjustable Rate Mortgage (ARM). You will take full
advantage of the lower initial rate and not be as concerned about rate increases
since you will have moved when they begin to take effect. Tailor your ARM's
first adjustment period to the time you will be in the house.
One should consult with a qualified mortgage professional prior to
implementing any mortgage strategies.
If you are a tax, insurance, financial or insurance planning professional
receiving this newsletter, please call our office and introduce yourself to us.
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